Leasing Scene on a Downward Trajectory

Although it has not been extensively used in Croatia, sale and lease back leasing has been on a downward trajectory for several years. This is a form of leasing in which the lessee sells the asset to the lessor, after which the lessor enters into a lease agreement for that item. In this way, long-term assets become cash, and this form of financing is primarily used by entrepreneurs, mainly for machinery and equipment.

The overall leasing scene is not faring any better than sale and lease back leasing in Croatia, as the number of leasing companies has been decreasing year by year. However, the industry hopes that the positive direction of the Croatian economy, which has begun to emerge, will positively impact the state of leasing. Perhaps the announcement of an agreement, which was recently reported, between Konzum and Agrokor with the South African investment fund Tower Property Fund Limited regarding the sale of two shopping centers in Zagreb and one each in Velika Gorica and Župa dubrovačka through sale and lease back is a sign of this.
The deal is valued at 66.4 million euros, as announced on the Tower Property Fund Limited website, and is expected to be concluded in April. Konzum will immediately lease these properties and continue to manage them, thereby freeing up the cash value of the property to further invest that money and expand the business. In the retail sector, leasing is beneficial as retailers do not necessarily need ownership of the properties, but only the space in which to trade.

Self-Financing of Entrepreneurs The fact that they are satisfied with this method of financing is confirmed by the fact that Agrokor also arranged a sale and lease back for five stores with the American investment fund W. P. Carey two and a half years ago for 67 million euros. In addition to leasing three stores in Zagreb and one in Split and Zadar for 20 years, Agrokor pays taxes, insurance, and maintenance of the premises. Next July, the ten-year return lease for the purchase of 70 Končar trams – electric vehicles, worth a total of 158 million euros for the Zagreb Electric Tram, will expire. The City of Zagreb and Zagrebački holding have agreed with UniCredit Leasing Croatia to procure new trams with a return lease for the previously delivered 70 trams.                         
– Until 2008, it was most commonly used in the real estate leasing sector, and over time it has become accepted and used in self-financing of equipment, machinery, including trucks and, less frequently, passenger cars. Another reason was obtaining working capital for regular operations through asset sales and the use of sale and lease back. Today, sale and lease back transactions do not exceed five percent of the total newly contracted leasing on an annual basis. They are primarily used by entrepreneurs who wish to self-finance with the value of their assets. They activate their asset potential free for this purpose because it is unencumbered by a pledge or paid off, as emphasized by Raiffeisen Bank Austria.

Stable Ones Survive This is chosen, they explain, by entrepreneurs who carry out the purchase, import, or registration of machinery, charter boats, and others when they can achieve better, that is, lower purchase prices in foreign markets than with domestic suppliers. Individuals generally do not use it, for example, due to VAT or special taxes on motor vehicles. Such more sophisticated types of leasing do not particularly affect the operations of leasing companies, say RBA. Namely, there is no special impact either in technological-process or value terms. However, they add, the process is more demanding due to the mandatory assessment of the leased item if it concerns used leasing objects.
– Generally, no significant deviations in business are expected this year compared to 2015. The assets of leasing companies have been declining since 2008, and their number is constantly decreasing. Leasing companies that are stable in every respect, with experience, knowledge, procedures, and that comply with international and domestic laws and norms, survive in the market. We would particularly emphasize that the difference between financial credit services and leasing should always be highlighted. Leasing is a more viable financial service, tailored to the user from all sides. This means, according to the actual business, production, and service needs, the value and subsequent marketability of the leased item, the lifespan of that item, and the actual way of using the funds spent on the leased item, remind RBA.

The Market Will Grow And at UniCredit Leasing Croatia, they confirm that this financing model represents a very small share of total sales and that they have also recorded a trend of further decline in sale and lease back leasing in recent years. Users of such leasing in that leasing company are usually legal entities that use this form of financing immediately after importing the leased object, such as commercial vehicles, machinery, or equipment. And since there is fundamentally no difference in the approach to assessing the creditworthiness of sale and lease back leasing users and other leasing users, there can be no special impact on the operations of the leasing company. The trends in the development of the Croatian economy are positive for UniCredit Leasing Croatia, which also affects the growth of the leasing market. Therefore, they expect enrichment and diversity in the supplier offerings. As the leading company in Croatia, they said, which can finance very demanding projects in cooperation with Zagrebačka banka, they expect further market share growth.